EUR/AUD – Conservative Outlook on the Pennant Breakout

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EUR/AUD - Conservative Outlook on the Pennant Breakout

Backdrop: ring mid- and late January EUR/AUD stopped a downswing as price tagged the 1.40 mark. Even though we had another attempt that broke 1.40 and made a low at 1.3965, the immediate rebound suggested that 1.40 is still a strong support despite the brief breach. As you can see in the 4H chart below, the market was able to form a double bottom.

EUR/AUD 4H chart 2/11
euraud02112015
(click to enlarge)

Double Bottom: After rallying above 1.44 at the end of January, EUR/AUD official completed a double bottom, and price rallied to 1.49 before retreating. Price has crossed over the 200-, 100-, and 50-period simple moving averages (SMAs), and the 4H RSI has tagged 70. These are signs of nascent bullish bias and momentum.

Double Bottom Respected; Pennant Breakout: Price retreated from about 1.49 in a pennant pattern, but held above 1.44, which shows respect to the previous price bottom. This week, price pushed above the pennant pattern, over the SMAs, and the 4H RSI held above 40. These are additional signs of bullish development. With EUR/AUD rallying above 1.46 today (2/11), the 1.49 handle is in site, with risk of the pair extending further towards 1.50.

EUR/AUD Daily Chart 2/11
euraud02112015day
(click to enlarge)

Neutral Market: When we look at the daily chart, we see a market without much direction, or any consistent volatility. Price is stuck in a cluster of moving averages, which are moving sideways, indicative of a neutral market. Now, while the medium-term mode is sideways, the short-term mode has turned bullish as noted when assessing the 4h chart.

Conservative Bullish Outlook: As price pushes towards 1.49, it can clear the SMAs and the daily RSI would push above 60, which would be additional clues for a bullish outlook in the short-term. We can see that the 1.50 handle is a common support in December. Without a prevailing uptrend, we might want to limit our bullish outlook instead of anticipating the run up to 1.5332, the 2014-high. 1.50 seems like a reasonable target for a short-term uptrend within a neutral medium-term mode.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.